Sunday, July 20, 2008

Tim Auld of Queensland, Australia, wrote to me and raised some very good questions about Al Gore's latest energy initiative to shift 100% of electricity generation in the US to renewable energy sources, which Al rather pompously called "A generational challenge to repower America." Al is a pompous guy, but that's OK. I give him credit for the nice double-entendre on "generational" (human and electric). Here's what Tim wrote:

I would like to hear your opinion on Al Gore's new call to action. He wants to power America using entirely renewable energy within 10 years. [...] The US is broke, there is little spare capital globally (perhaps except that held by oil exporters, [and] why would they help?), and already has a backlog of infrastructure maintenance it can't fund. It seems the first problem would be financing such an unprecedented project. [...] Conservation and efficiency seem like a footnote in his speech, but I think it would have to underpin the whole exercise on an epic scale. Finally, no question seems to be asked if this situation is the perfect excuse to ditch the old auto centric and high energy lifestyle to gain a whole swag of benefits. Is this a case of aim for the moon to make it over the trees, or is it the boondoggle to end all boondoggles?

I read through the speech, and it's not bad as such speeches go. It says all the right things about the problems we face - things quite a few of us already know - and it makes us feel good to hear them said well and to a large audience. Whether that audience is capable of absorbing the message is another matter. Al is careful to avoid proposing to slaughter any of the sacred cows of the "American way of life," such as private automobile ownership, or the right to squander as much energy as you can afford, be it by cranking up the air conditioning or cruising around in a motor yacht. In this, Al Gore and Dick Cheney seem to be soul-mates: to them the American way of life is non-negotiable.

If it were, his speech might run something like this:

Folks, oil is starting to run out, and we can't afford to keep on driving like we're used to. So, let's stop making and importing new cars, let's stop with the highway expansion, stop maintaining all those highway lanes at public expense, and move those resources to funding public transportation. Second, we've got to stop burning so much coal before the planet's climate blows up on us (of course, it may anyway, because of all the coal we've burned already) so let's build some wind mills, to provide, say, 75% of electricity within 10 years (100% won't work, because wind is intermittent, so you need some gas-fired power plants, for when it isn't blowing). But most importantly we must cut our energy use, before we're bankrupt as a nation (which we may be already) and we must do so very quickly. So let's regulate the use of air conditioning in businesses (ceiling fans, anyone?), stop illuminating roads and parking lots at night, and make a lot of other, sensible measures to cut energy use. And once we've done all these things, we will realize what sort of country we are now: not one that's driving off a cliff at breakneck speed with eyes shut tight, but an older, poorer, troubled country, not one likely to ever go to the moon again, but one that is perhaps capable of learning to live within its means without collapsing altogether. Thank you, and drive safely."

Al couldn't have given a speech like that for two reasons. For one, it wouldn't have gone over too well. For another, he is a product of a system - a national politician who is the son of a national politician. Politicians always try to perpetuate the system that got them into power.

So, no, building windmills is not a boondoggle to end all boondoggles, although the likelihood of getting the stable financing and permanent support tariffs in an era of high inflation and bankrupt federal government is not great. It's all the things that All doesn't mention that makes his proposal less significant than it might otherwise be.

Thursday, July 10, 2008

A lot of people might miss this one, because it is only on amazon.co.uk, so I am posting it here. I like it, because, for one thing, just like my book, it is short and easy to read. The other reasons should be obvious. Cheers, M. Lyster!

NOT just another doom-monger book

There are just too many books about peak oil and other imminent economic, social and ecological crises, which all seem the same. They go over familiar ground and display no new insight or real depth of thought. I'm tired of reading them. Too often the author is a recent convert to these views and lacks the authority or background to contribute anything new, concluding feebly that the reader should learn about gardening and drive a smaller car. Well, duh! as my kids would say.

What a refreshing change to read Orlov's quirky and thought-provoking book which takes the basic premise of looming crisis for granted, and gets straight into delivering his first-hand insight into the collapse of the Soviet economy in a fresh, non-mathematical way (there are no graphs or tables of data) and how most people survived it. Not only that, but all delivered with the wickedly dry wit of a native Russian, living in the USA, who is clearly tired of hearing Americans crowing that they won the Cold War.

To give an example from the introduction, Orlov mentions a survey of Americans which asked, "Will you be able to afford to retire?" (one third said no). Without stopping to go over familiar arguments, Orlov proceeds immediately to strip away the euphemisms and assumptions, and translate the question as "Will you survive when you are too old to work, if not, what are you doing about it?". From his Russian experience, he then adds "Here is a bad solution: get drunk a lot."

Although aimed squarely at an American audience, this book is just as valuable for Europeans, and I recommend it to anyone who realises that our high-consumption, supermarkets-and-jet-planes society cannot last much longer, and is interested in thinking right through what that really means. Orlov treats his readers as intelligent people who will reach their own conclusions, and do not need to be spoon-fed with fatuous recommendations. It's a treat.

Thursday, July 03, 2008

Let's take a hypothetical Joe Blow. He is married and has a teen-age son. Like many Americans, Joe likes to live big: a big suburban mansion, a gigantic SUV, and, pièce de résistance, a sportfishing boat with not two but three 325-hoursepower Yamaha outboards on the back! Joe sells vacation/investment properties: condo units in partially completed new neighborhoods overlooking scenic brackish swamps in a hurricane zone. I have some questions about the effects of macroeconomic shifts on the financial outlook of the Blow family.

1. Joe's savings and retirement funds are tapped out, and he doesn't seem to be able to get any more loans. Nobody wants accept his prized possessions as collateral. What effect will rising interest rates have on Joe's ability to borrow?

2. The condos that Joe is trying to move are dropping in value. He hasn't been able to move a single one in many months. What effect will continuing asset depreciation have on his ability to earn commissions?

3. Joe's wife's credit cards are maxed out, and she doesn't seem to be able to get any more. What effect will inflation in China have on her ability to continue buying those stylish Chinese-made outfits she likes to surprise Joe with?

4. Joe's wife has planted some potatoes and squash in the back yard. What effect will rising food prices have on the cost of the produce she is growing?

5. To keep warm in the wintertime, the Blow family plans on burning their furniture. What effect will the rising heating oil and natural gas prices have their family budget?

6. Joe's son hasn't been able to get the student loans he needed to go on to college, so his Plan B is to develop a heroin habit and spend his days sitting in his room nodding out to music. He plans to pay for his habit by dressing up in some of his mom's sexier outfits and turning tricks. What effect will the economic policies of the two presidential candidates have on his business plan?

I am guessing that, in tackling these questions, an economist would most likely want to discuss whether what we have should properly be called inflation or deflation. Joe's assets are decreasing in value, and that is deflationary. There is also a great deal of volatility in food and energy prices, which might look like inflation, but then Joe's wages aren't rising to keep up, so there is no wage inflation. So perhaps it's a wash. What then is the optimum interest rate? There will certainly be some short-term pain, but it will make the economy more efficient in the long run. What was the question again?

It seems to me that a perfectly reasonable answer to all these questions is "none at all," but then I am not an economist. I am an engineer by training. And so here's a question I should be able to answer. Joe's stereo system is on fire. It kept blowing fuses, so he wrapped the fuse in tin foil, and then rats chewed through the speaker wires and shorted them out. What effect will graphic equalizer settings have on the sound quality of his stereo system?